Controlling litigation costs Featured

8:00pm EDT April 25, 2007
Business leaders often rely on agreements with other companies to advance in the business world. While

such relationships may help their companies grow, the detail and precision with which these agreements are structured may define true success. If these relationships sour, litigation may result.

Litigation often arises over contracts, partnerships or joint ventures entered into by company leaders, says Tony Paganelli, shareholder and director with Sommer Barnard PC.

Smart Business spoke with Paganelli on how companies can prevent litigation and reduce litigation costs once an issue arises.

What steps can company leaders take to prevent litigation?

Conflicting contract interpretations often cause parties to seek out litigation to resolve their disputes. One way leaders can prevent litigation is to make contracts specific and detailed.

In an attempt to save money on legal costs, some business leaders — especially in small businesses — take it upon themselves to draft contracts and business agreements. Business owners see this as a way to save money because they do not have to consult a lawyer for advice. The irony of this decision is that it often costs more to litigate than to hire a legal professional to help draft a business agreement and avoid ambiguity.

Employers should also hire a strong and competent human resources director who can implement and manage a set of employee policies that ensure all laws and regulations within the industry are followed. An HR director should communicate any company changes to employees and ensure all employees understand the changes.

Why is investing in preventive measures beneficial for a company?

When it comes to litigation, the old adage is true: An ounce of prevention is worth a pound of cure. Companies are naturally hesitant to invest money upfront when there is no crisis. They only hurt themselves in the long run, because hiring a lawyer after a crisis occurs is much more costly and requires more time for the lawyer to conduct research and develop a case.

Having good policies and contracts in place can help prevent frivolous lawsuits by defining the responsibilities of all parties involved. Well-communicated policies are necessary to help prevent — but not eliminate — litigation. The stronger your documents and contracts are, the stronger are your chances of winning.

How can a lawyer and client work together to meet the needs of the company?

When a lawsuit begins, it is necessary for the client and lawyer to sit down together and decide the outcome they would like to achieve and the resources they plan to use.

A client should ask the lawyer working on the case: What are the anticipated fees and costs? What is the process, and how and when will certain events take place? How long will the litigation last? Some of these things are uncertain, but experienced lawyers should be able to give the client a rough budget and timeline early.

A client and a lawyer should agree on the overall goal of the litigation. The key is communication and goal-setting. Meetings should take place often as the litigation process evolves.

What should be outlined prior to starting the litigation process to be successful?

A client needs to be completely open and forthcoming with information and documentation. It is costly when a lawyer has to go back to the client repeatedly and retrieve further information. If a client finds new relevant information long after the litigation process begins, it may cause the lawyer to change the direction and strategy of the case — which also can be very costly.

To be successful, a client should gather documents, information and witnesses as soon as the case arises. New electronic discovery rules also require lawyers and clients in federal cases to pay particular attention to the preservation and disclosure of computer files and other electronically stored information. With the appropriate information, the legal adviser can make a recommendation of how the case should be handled.

What options do companies have — outside litigation — that can help cut costs?

Two options are mediation and arbitration. Mediation is a settlement conference where a mediator works with two groups to come to a resolution. The mediator has no authority to make the parties settle, but many disputes that go to mediation settle there and save companies both time and money. Mediation usually takes place while the lawsuit is pending or on appeal and is meant to expedite the entire process.

The second option is arbitration. This process requires parties to hire private arbitrators to act as judges to come to a decision. The advantage to this process is it is usually much faster and can be cheaper. The downside to arbitration is that a bad arbitration ruling is hard to appeal, making the process more ideal for small disputes than for very large ones.

TONY PAGANELLI is a shareholder and director with Sommer Barnard PC. Reach him at tpaganelli@sommerbarnard.com or (317) 713-3573.